Take 2 is usually written by two 20-year-olds named Chris. Chris Lahiji is the youngest mutual fund manager in U.S. History. Chris Stallman is currently working on an investment book for young adults and teenagers while he operates www.teenanalyst.com. However, this summer, Stallman was recuited to do an internship at Morningstar, which rates mutual funds, such as the one Lahiji runs.

Due to the potential confilct of interest, albeit temporary, we solicited a guest columnist, Jason Stock, the 28-year-old header trader of a hedge fund, to compare his views with those of Lahiji's on ChevronTexaco (NYSE: CVX).

It's a big wooly mammoth of a company. With a presence in more than 180 countries, ChevronTexaco [NYSE: CVX] is one of the world's largest corporations and a very profitable one at that, earning more than $7 billion in straight profit last year. That's a lot of cheese.

The lack of competition in the oil segment is the reason why gasoline prices have gone through the roof. ChevronTexaco is benefiting substantially and leaving me no option but to take the bicycle to work in Los Angeles. But is it a worthwhile investment?

1. Its stock price is near an historic high, at more than $90 a share currently. The stock has been at these levels six times in the last five years and gone lower. It's often a CYCLICAL STOCK, and ChevronTexaco has nowhere to go but down.
2. But wait...ChevronTexaco makes billions a year and gives a lot of it back to its shareholders. For each share that you own, the stock pays you $2.92 a year. Not bad, considering you get a yield of more than 3 percent just for holding it.
3. Oil is still one of the world's largest forms of energy. The globe is dependent on this commodity, and it will take another few decades before an "alternative" means of power comes around and makes oil useless. If that happens, ChevronTexaco has $4 billion in cash waiting for a threat to come by and will just buy them out.
4. Unfortunately, the success of this stock is really tied to the price of crude oil. Not only is it volatile, but it's really unpredictable. If crude oil goes up, ChevronTexaco's profit goes up and vice versa, which means sales are out of the company's hands.

Believe it or not, both gasoline and oil prices can, and likely will, go higher. I'm sure this isn't welcome news to those of you who believe it is your right as an American to pump your SUV full of $2/gallon gasoline and drive to your heart's content. What does this outlook mean for ChevronTexaco investors?

1. There is a huge demand for oil. Global demand is currently expected to increase by 2.3 million barrels of oil per day as a result of robust consumption in China and North America.
2. Today's global condition of instability will support higher oil prices because of the "risk premium" in oil prices. This is a result of terrorism, pipeline attacks, and civil unrest that will continue for quite some time.
3. ChevronTexaco has a higher GROSS MARGIN than some of its major competitors and has also grown sales more quickly. This means it's selling more, and making more money on each dollar sold than the rest.
4. Right now, ChevronTexaco is selling at a discount mostly because Wall Street is disappointed with the lack of cost savings from the Chevron/Texaco merger and skepticism about the success of the company's exploration program.
5. However, ChevronTexaco's first quarter was remarkably strong, proving that the company is progressing toward a valuation more comparable to its peers.

It's time to start planning for permanently higher oil and gas prices. For some, this may mean investing in ChevronTexaco stock rather than gas itself. For others, it may mean taking a second job to pay for transportation to the first. Regardless of your situation, it's time to say goodbye to the days of cheap oil.
 

Editor's Note: The opinions expressed here are not necessarily that of the publisher and/or distributors of the magazine. All analysis is meant for educational purposes only and not as financial advice. You should not make decisions based on information contained in brass | CU without the advice of a qualified professional advisor.